The U.S. Supreme Court has heard arguments regarding the legality of tariffs implemented by the Trump administration, primarily under the International Emergency Economic Powers Act (IEEPA). The case involves challenges from small businesses and several states, contending that most of these tariffs are unlawful. A ruling against the administration could necessitate refunds of billions of dollars collected and potentially alter future presidential approaches to trade policy. Justices' questions during the hearing indicated skepticism regarding the broad application and legal basis for the tariffs.
Case Overview
The core of the legal challenge revolves around the authority granted to the President by the 1977 International Emergency Economic Powers Act (IEEPA). This act permits the President to "regulate" trade in response to an emergency. The Trump administration first invoked IEEPA in February to impose tariffs on goods from China, Mexico, and Canada, citing drug trafficking as an emergency. In April, the act was used again to levy tariffs ranging from 10% to 50% on goods from numerous other countries globally, with the U.S. trade deficit being cited as an "extraordinary and unusual threat."
Challengers, including a group of states and private businesses, argue that while IEEPA allows the President to regulate trade, it does not explicitly mention tariffs. They contend that under the U.S. Constitution, only Congress has the authority to establish taxes, duties, and tariffs. Opponents also dispute whether the issues cited by the White House, such as the trade deficit, qualify as emergencies under the act. Legal representation for private businesses argued that while the law allows for embargoes or quotas, a revenue-generating tariff exceeds this authority.
Arguments from the Administration and the Justices' Inquiry
The Trump administration, represented by Solicitor General John Sauer, argued that the power to regulate trade under IEEPA includes the authority to impose tariffs. Sauer stated that the nation faced severe crises necessitating emergency presidential action and warned that invalidating the president's tariff powers could lead to "ruthless trade retaliation" and "ruinous economic and national security consequences." He asserted that any revenue raised through tariffs was "only incidental" to their regulatory purpose. President Trump characterized an unfavorable ruling as a restriction on his trade negotiation abilities and a threat to national security.
During the hearing, several justices expressed doubts about the administration's arguments. Justice Amy Coney Barrett questioned the broad application of the "reciprocal tariff policy" to countries like Spain and France. Chief Justice John Roberts highlighted the potential scope of power, noting it could be used to impose tariffs on "any product from any country in any amount, for any length of time." Justice Neil Gorsuch raised concerns about the separation of powers and whether Congress could be seen as abdicating its responsibility to regulate foreign commerce. Justice Sonia Sotomayor directly stated that "tariffs are not taxes but that's exactly what they are." Conversely, Justice Brett Kavanaugh questioned the practicality of limiting presidential power to block trade entirely while denying the power to impose minor tariffs.
Historical Context and Lower Court Rulings
While previous presidents have used IEEPA for sanctions, the Trump administration was the first to invoke it for tariffs. Three lower courts have previously ruled against the Trump administration on this issue. Congress members from both parties have affirmed their view that the Constitution assigns responsibility for creating tariffs to the legislative branch. Over 200 Democrats and one Republican senator, Lisa Murkowski, submitted a brief to the Supreme Court arguing that IEEPA does not grant the President power to use tariffs as a bargaining tool. The Senate also passed three bipartisan resolutions rejecting the tariffs, though these are not expected to pass in the House.
Potential Financial and Economic Implications
The ruling has implications for an estimated $90 billion worth of import taxes already collected, representing approximately half of the U.S. tariff revenue through September this year, according to Wells Fargo analysts. This sum could increase to $1 trillion if the court's decision is delayed until June. If the Supreme Court rules against the administration, the government might be required to refund these collected funds. Over 1,000 companies have filed lawsuits seeking refunds, although the court could potentially determine the tariffs unlawful but apply the ruling only to future collections.
Businesses have reported experiencing significant costs and disruptions due to the tariff policies. Learning Resources, a U.S.-based toy seller, anticipated incurring $14 million in tariffs in one year, a seven-fold increase from 2024, leading to the relocation of manufacturing for hundreds of items. Cooperative Coffees, an importer, reported paying approximately $1.3 million in tariffs since April. While businesses like Cooperative Coffees would seek refunds, they note such compensation would not fully address operational disruptions, increased prices, and reduced profits.
White House Contingency Plans and Future Outlook
White House officials have indicated they are preparing for a "Plan B" if the court does not rule in their favor. This contingency includes exploring other tariff authorities. According to National Economic Council Director Kevin Hassett, President Trump intends to immediately impose 10% across-the-board tariffs, likely under Section 122 of the Trade Act of 1974, which permits presidents to impose duties up to 15% for up to 150 days. More lasting tariffs targeting specific industries or countries would be pursued under other statutes. Trade lawyer Ted Murphy noted that these alternative methods require more formal notices and deliberation, potentially offering some relief to businesses.
The Supreme Court is expected to deliver its decision within months, potentially by January, though it could extend until June. The court's ruling is considered difficult to forecast. While the Supreme Court has invalidated significant policies in recent years on grounds of White House overreach, it has also historically granted leeway to the White House on matters of national security. The nine justices include six appointed by Republicans, with three appointed by President Trump.
The ongoing case has also introduced complexities into existing trade agreements, such as a deal reached with the European Union in July, which sets U.S. tariffs on European goods at 15%. The European Parliament is reviewing this agreement and is not expected to act until the Supreme Court's decision is released.